On Friday’s trade we saw a mixed bag across most major equity indices. In the European session stocks were under pressure but it felt as if much of the negative sentiment was flowing from the US where a delay in the vote on tax reform and growing pressure from developments on the Russian probe put some pressures on the administration. The result was broad based weakness across the European session and into the US open. However running up to the US close we saw stocks recover as some progress was made on the tax bill with futures markets suggesting a gap higher into this week’s open. In the UK the broadly firmer GBP has seen the FTSE under selling pressures and while GBP holds its strength for now, it still has a long way to go to shake off Brexit talks which are currently still in a tense place with concerns about the border between Northern Ireland and the Republic, a hot and contentious topic.
In currency markets, the USD index bounced from some early selling to close the day more or less flat, while EURUSD also traded flat on the day. GBP was firmer through much of the day, only the late rally in the USD saw GBPUSD trade slightly lower. The welcome in the week however we are slightly firmer. The outlook for the pound is firmly linked to Brexit talks and how they are perceived to be progressing. Needless to say this is certainly difficult to predict but recent progress around the “divorce settlement” has obviously been taken as positive. Construction CPI headlines this morning’s calendar and while we have seen some weakness in these prints in recent months some slight improvement is expected up to a print of 51. This is not a million miles away from the contraction/expansion level of 50 so anything below that level may see some short term GBP weakness. Negotiations continue in Brussels and GBP will likely find itself more exposed to those headlines than anything else. GBPUSD traded briefly above 1.3550 however this morning low print way just above 1.3400. That’s likely to be the range for now but firmer support is below back towards 1.3300 area. EURGBP has been trading between .8772 and .8846 the last 4 sessions, we’re unlikely to see too much shift on that front today unless we get some major Brexit related headlines.
Late on Friday the senate passed their version of the US tax plan, the new fiscal policy resulted in a late rally in the USD which has opened the week trading higher as well. There still may be some concerns around this tax bill and while the senate vote is a step in the right direction we’ll need to see their bill reconciled with the house of reps, which may be easier said than done. In the US we also have the Russian probe running in the background and while that’s been ticking along in the background its beginning to take the headlines once more and may pose some concerns. Factory orders and durable goods figures cross the wires but again may play second fiddled the larger ongoing concerns. EURUSD key levels to watch are resistance to moves higher around 1.1945/50 while support at 1.1800/12 area.